Importance of Tourism and its Economic Value

Why tourism industry is important?

Kshitiz Thakur | New Delhi

Importance of tourism arises from the numerous benefits and advantages it brings to any host country. Tourism contributes towards complete growth and development of a country: one, by bringing numerous economic value & benefits; and, second, helping in build country's brand value, image & identity. Tourism industry goes beyond attractive destinations, to being an important economic growth contributor.

importance of tourism industry and its benefits

Tourism Industry and its Importance

We are going to talk about and explain how tourism adds economic (as well as non-monetary) value to a country and how and why tourism industry is important for every country and why it is so important that a country looks at tourism not just from the point of view of attracting tourists but as an activity to boost its economy and brand value and create brand value, create better living standards for its people and in the process generate revenues and foreign exchange.

But to really understand the economic value of tourism industry and all the benefits and advantages it brings for any country, we need to start with understanding what is tourism and then know what is tourism as an industry and what all it comprises. Before going on with all the explaining and definitions of tourism and of the industry let us briefly look at what it is.

Tourism basically implies travelling to a new place for leisure or business purposes, staying there for a significant yet limited period of time and coming back. This involves various activities on behalf of an individual or group of individuals. Further, these activities involve consuming of different services and products. All these activities along with all the services and products collectively are known as tourism industry. Whatever a tourist pays for during this whole activity creates tourism industry revenues.

Tourism brings with it tremendous economic value for a country. This is primarily because it involves a large number of products and services which benefit from inbound tourists. This is the most unique aspect of tourism where it touches and impacts several industries directly and many more indirectly through tourist spend. This makes this industry a bit more important than other industries as it has a vast value chain. And yes tourism is one of the important sources of foreign exchange earnings of a country. And so we can say tourism gains much more economic importance for any country.

Let us now go into details and understand tourism, its industry & value chain and its importance and the various benefits and advantages it brings with it.

What is Tourism (It's Definition)

The word tourism is all too familiar to all of us, we know what it means. Just the mention of this name would bring so many images of beautiful places, natures, beaches, cities, travel and fun. But we may have to think little hard than this when asked how to define tourism. Or what is tourism? The two basic things we all know about it is that it is travelling and visiting a new place or a place away from your home. If you thought this then you summed it up quite alright.

This is what The World Tourism Organization defines tourism as, "Tourism comprises the activities of persons traveling to, and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes."

Let us elaborate this tourism definition a little bit now. How this definition relates to what we thought about it. First, tourism is travelling for the purposes of leisure, business or any other. Broadly the objective can be summed as either leisure or business. Second, it is going to and staying in places which are outside of one's usual environment. The environment mentioned here means the place of usual stay of a tourist which is their home town, city or country. In case of domestic tourism the environment would be their home town or city and in case of international tourism it would be the country they live in.

The third important factor is the period. If one goes to another city or country and stays there for a longer period then it does not count as tourism. The fourth thing we can add here is tourism is volunteer and self-motivated in nature and not a paid stay. And travel is the essential part of tourism.

So, in simple words tourism can be defined as travelling to a place which is different from your home city or country for various leisure or business purposes, and staying there for some considerable period of time at a length. It is travelling for some purpose and for stay which is not very long or permanent in nature.

Tourism although involves travelling but is more than just travelling as the definitions clarified. We would like to point out few of our own differences between tourism and travel which will bring little more clarity about tourism.

    Tourism means:

  • Travel which is not a routine trip of any kind
  • Travel which not just involves local transportation
  • Travel which usually uses more than local and inter city or inter country transportation
  • Travel which usually involves a stay
  • Travel which is volunteer totally or at least partially
  • Travel which ends at the source of travel which is home place

What is Tourism Industry (It's Definition)

We can understand tourism industry from the definition and description of tourism in the above section. We just have to take it forward and put it in perspective of an industry. Tourism is largely a services industry. Interestingly, tourism as an industry has no proper definition as an industry. This is because we cannot properly define tourism as an industry limited by a certain set of related economic activities. It has no predefined boundaries as an industry. And then most of the services consumed by tourists cannot be exclusively termed as being provided specifically for tourists like travel, hotel, food and lodging. So, when we try to define and structure tourism as an industry, we need to consider these limitations or should we rather say that tourism's unrestricted presence across various other industries.

The best way to describe, structure and define tourism industry is to look it through the definition and explanation of tourism.

Just to simplify, we would like to define tourism industry as a set of different services and products which are collectively consumed by tourists or visitors throughout their tour, right from planning to returning back.

As we explained in previous paragraphs tourism is a set of activities which are done collectively. These are from the demand side i.e. from the perspective of people who do it. When we look at the monetary or economic value of the same set of activities together which means looking at these from the perspective of companies engaged in serving tourists i.e. the supply side it becomes Tourism Industry. The expenditure on these activities and more can be termed as tourism expenditure or revenues. The sectors providing these products and services collectively come under the tourism industry.

The UNWTO refers it as Tourism Sector which is made of several tourism focused industries that normally offer tourism characteristic products (and services). Taking this forward UNWTO defines 12 tourism industries that can be said to be serving the tourists in general. These industries are:

  1. Accommodation for visitors
  2. Food and beverage serving activities
  3. Railway passenger transport
  4. Road passenger transport
  5. Water passenger transport
  6. Air passenger transport
  7. Transport equipment rental
  8. Travel agencies and other reservation services activities
  9. Cultural activities
  10. Sports and recreational activities
  11. Retail trade of country-specific tourism characteristic goods
  12. Other country-specific tourism characteristic activities

These largely comprise the tourism industry which then can be described as being made up of different industries which primarily aim to provide a range of products and services aimed at serving tourism and the needs of travelers or visitors. This brings us to the value chain of tourism industry.

Tourism industry Value Chain and how it goes beyond it

When we look at the size and composition of tourism and its industry then we can start by saying that the industry revenues are a sum total of the expenditure of tourists on various services and products.

Tourism Industry Value Chain

The tourist expenditure basically comprises of tourist or business travelers spend on travel, stay, hotels, food, transportation, entertainment, visiting local destinations or places, etc.

In this way travel and tourism industry is directly generating or resulting in revenues for airlines; railways; transport services like buses, taxis, cabs, etc.; hotels and restaurants, various food outlets, takeaways, food chains, etc; entertainment places like cinemas, parks, etc.; and various tourist places. This is also what can broadly be called as the value chain of travel and tourism industry.

This describes the vastness of the value chain of tourism and also brings to light its importance for the industries and economy of a country. This is another unique aspect of tourism which gives this sector such a wide impact globally on so many diverse industries ranging from hotels to food and transportation. But there is even more to it, areas where it makes its largest impact. This sector even goes beyond these industries.

The 12 industries listed by UNWTO broadly define and describe tourism industry value chain. According to the typical process a tourist takes when going for a tour, we can re-arrange those 12 industries in the following way:

    Primary Activities:

  1. Travel agencies and other reservation services activities
  2. Railway passenger transport
  3. Road passenger transport
  4. Water passenger transport
  5. Air passenger transport
  6. Accommodation for visitors
  7. Food and beverage serving activities
  8. Transport equipment rental

    Secondary Activities:

  1. Cultural activities
  2. Sports and recreational activities
  3. Other country-specific tourism characteristic activities

    Non tourism specific Activities (going beyond tourism's primary value chain):

  1. Retail trade of country-specific tourism characteristic goods

The above segregation again strengthens the economic value and importance of tourism. The last item in the above list of industries is a clear pointer towards the fact that tourism goes much beyond its primary or usual value chain of products and services and adds value to other industries.

Importance of Tourism Industry - What makes tourism it so important

The importance of tourism industry is only due to its vast value chain and its significance increases due to the fact that it indirectly adds value to many other industries which are not primarily a part of its value chain.

Tourism boosts many more industries beyond its value chain

Tourism impacts, directly or indirectly, a number of industries from aviation, airlines, airports, electronics; roads; rails; hotels, restaurants and related services; electricity and power; construction, basic metals and related sectors like steel, cement, mining; automobiles and related services; telecommunications; banks and ATMs; travel related services like ticketing, travel agents; healthcare and industries & services related to providing better health and hygiene; and more.

This makes it important because it covers so many sectors and industries, and numerous types of products and services within. Tourism creates a huge demand for different products and services for the whole economy. This sector consistently brings in new consumers for these industries as well.

A simple way of stressing upon the importance and economic value of tourism industry for a country is saying that:

Tourism adds to the consumer population of a country who for a short period of time do almost all of the things and consumes most of the service and products which a country's native population or consumers do. So, it just grows the overall demand in a country's economy on a sustainable basis.

But this is not all. It actually helps in and contributes towards the overall development of a country with its monetary contribution for the economy and its non-monetary contributions for society and its growth and well being.

The direct or indirect contribution of tourism towards a growth and development of a country can be broadly listed as follows:

  • Revenue generation
  • Economic growth
  • Infrastructure development
  • Source of foreign exchange earnings
  • Source of employment generation
  • Improvement of living standards
  • Cultural growth
  • Betterment of society
  • Global connectivity
  • Introduction of new technologies

There is another way of saying (with proof) that Tourism brings much more benefits and advantages and is much more important than any other industry. This is by look at the TTC index. This clearly shows how tourism impacts so many industries. Also, it shows it's non-monetary value, where it helps a country build and boost its image and brand value on a global scale.

The Travel & Tourism Competitiveness Index (TTCI) of the World Economic Forum is one perfect example to point towards the impact of travel and tourism sector on industries beyond its value chain. According to TTCI report of WEF the index measures "the set of factors and policies that enable the sustainable development of the travel and tourism sector, which in turn, contributes to the development and competitiveness of a country".

Measure of importance of tourism by WEF's TTCI Index

The 2017 TTC index, which covered 136 countries and their economies for its report, measures their competitiveness on three key areas which are, regulatory framework; business environment and infrastructure; and human, cultural, and natural resources. These 3 key sub-indexes collectively measure competitiveness of each country on 14 key parameters. These are, policy rules and regulations; air transport infrastructure; ground transport infrastructure; tourism infrastructure; price competitiveness in the T&T industry; ICT infrastructure; prioritization of travel and tourism; human resources; safety and security; health and hygiene; environmental sustainability; affinity for travel and tourism; natural resources; and cultural resources.

Looking at the index and why it measures a country's competitiveness on so many areas to judge we can also say that 'Tourism effects, and requires contribution from, whole lot of industries beyond its value chain, the society and the political environment as well."

Non-Economic Benefits of Tourism

How Tourism helps countries build brand value and motivates to improve general living standards

The other important observation about the travel and tourism sector which we want to highlight is that the consumers of this sector are global and act accordingly when it comes to perception and consumption of tourism and related services as a whole. This observation or characteristic of this industry is what further strengthens its influence over the above discussed range of industries.

Let us now look at this second reason. For that let us first answer why a tourism consumer is truly global. Because he or she is a traveler, meaning, they travel to various places for business and leisure. What does this imply? This has a critical implication, among other things, affecting from both demand and supply sides. Looking from the demand side this implies that travelers (the consumers) have consumed almost the same set or bundle of services at various destinations and event venues globally, and so at the point of consuming these services, presently or in future, they would compare these at a global level. This demand side implication will prompt the country or region looking to attract tourists to induce quality and global standards in the infrastructure and tourism services they are providing.

The supply side of the same implication is that these services are available at various countries and places (which are event venues and destinations) and they can choose it from anywhere. So, the traveler evaluates and compares the infrastructure and services related to tourism, at any given point of time, at a global level. This prompts service providers to be more competitive and add more value to their services and bring innovation and ideas.

Hence, the provider of the infrastructure and services will have to adhere to global standards and not just be content with only serving their consumers.

Let us add here, in case of business tourism and MICE tourism, the expectations; the standards or parameters; the services and the infrastructure; and the quality levels, all are little high. Hence, tourism industry, apart from being so wide, also has wide and deep impacts, not only on the industries it involves but also on other several industries, the infrastructure and economy of country, and also its social, cultural and political environment. And yes, your consumer group is international. Hence, the standards or parameters of evaluation are international. Therefore your service level to your consumer group needs to be of international level.

Tourism Value in Conclusion

To further strengthen this argument, we would like to quote Mr. Mutyandasvika, general manager of The Elephant Hills resort as telling The Sunday News of Zimbabwe in an interview, that hosting conferences and meetings significantly contributed to the hotel revenues but MICE business in general is helping in the branding of that place's destination, employment creation and infrastructure development.

Tourism brings people from everywhere in the world. It is connecting places with people; places with places; and people with people. This sector brings the developed, growing, developing and emerging economies, all on single platform, thus driving them to become competitive globally and improve on their level of services, at least to be tourism competitive. It even drives countries to have a stable and sound political environment and also have a more developed society.

Thus travel and tourism can give boost to the economy in terms of consumer spending, job creation and more. For developing, emerging economies or where growth is slow, this sector can provide a great push as the travelers are from all over the world for example, from developed and mature countries with better spending powers. The currency differences can also boost travel to developing countries with depreciated currencies.

This sector is driving growth in industries, in fact pushing those industries and economies to do better. This uniqueness of travel and tourism and its impact can be said to be more pronounced in the business travel segment. Thus, tourism as a while and within it MICE or business events are, or could be, a significant factor in developing world-class infrastructure and level of services.

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